The stimulus checks brought respite for Americans during one of the most troubled times in history when the world economy shut down totally for months, with the effects persisting for a couple of years. Millions of Americans found themselves without a job overnight. And with a substantial percentage of the population living paycheck-to-paycheck, it could have meant immediate starvation, debt default, and homelessness.
The series of stimulus checks and other remedial measures gave immediate relief to around 90% of the people. They benefitted from multiple measures that continued till the end of 2021. Some remain in vogue even today, though they are far limited in their scope and effectiveness.
But the economy has gone through a rollercoaster ride starting with the pandemic and spreading across nations. The dizzying journey continues as inflation reaches record levels, the likes of which were not witnessed in more than 40 years.
American Saving Boom Came To An End After Inflation Negated The Gains
The economy experiences a brief but significant recovery in the last two quarters of 2021. But rising inflation starting from the last two quarters of 2021 has all but negated the ground gained.
Many Americans managed to repay high-interest debts such as credit card debts during the pandemic, thanks to the stimulus checks. They even managed to set aside a substantial part of the money, especially after the third stimulus check. Savings rose to an all-time high during and immediately after the pandemic.
Americans managed to save close to $3 trillion in excess savings, of their after-tax income at the turn of the year, but inflation and other factors have since affected their finances. The pandemic boom soon came to an end by the first quarter of 2022.
Savings soared during 2020, the first year of the pandemic as the federal government handed out billions in economic impact payments. Commonly known as the stimulus checks, these unemployment benefits, and other forms of federal stimulus checks, managed to help people during the pandemic-induced economic downturn.
The savings rate, the share of income that was invested and saved, and not spent, topped an admirable 33% in April 2020 and remained high the rest of that year. But then the savings rate fell in the third and fourth quarters of 2021.
The savings rate plunged back to its pre-pandemic level of around 7% last fall. In January 2022, Americans managed to save a mere 6.4% of their income after paying their taxes. It was the lowest monthly saving rate after 2013. It was an alarming sign of things to come.
Millions of employees lost long hours as the subsequent wave of coronavirus hit the American population. But this time the federal administration did not step in with more aid.
But Americans have an aggregate of around $2.7 trillion stashed away as excess savings. This sum was accumulated since the pandemic began according to estimates.
Inflation Negates The Savings Accumulated Through Stimulus Checks During Pandemic
With prices of gasoline, food, other essential items, utility costs, and home rent reaching astronomical levels, the increase in wages and the savings accumulated by Americans since the pandemic evaporated starting the last quarter of 2021. The situation has gotten worse since inflation touched record levels and crossed the 9% mark in June, reaching 9.1% finally. It was the highest inflation rate since December 1981.
The federal administration remains gridlocked in Washington’s political intrigue as President Biden is set to lose control of Congress at the midterms in November. Even now, the Senate has split down the middle along party lines but Senator Manchin has consistently stymied every move made by President Biden on several fronts.
At this level of chaos, it seems unlikely that he will be able to push through any more stimulus checks. Instead, he has concentrated on building up the nation’s infrastructure and creating income indirectly through an increase in employment, which has remained within control. The unemployment rate remains at 3.6% in June, according to figures released by the US Bureau of Labor Statistics.
Federal Attempts At A Gas Holiday instead of Stimulus Checks
Gas prices have been affected the most in the past two years, almost doubling in America during this period. There has been a $2 per gallon increase even since the situation in Europe moved towards a confrontation.
President Biden realized early on that high gasoline prices would pose a tough challenge for the low and moderate-income groups. He initiated measures in recent months to boost the production and supply of gas and oil. It included a historic release from the Strategic Petroleum Reserve and getting refineries and oil companies to boost their capacities and output to move more supply directly to the markets.
The President also called on Congress and states to take extra legislative measures that would provide immediate and direct relief to American consumers hit by the rise in oil prices, majorly due to the war in Europe and the embargo imposed by NATO countries. This move affected only the NATO countries. Russia has circumvented the measures by supplying extra oil to China and India, two of the biggest consumers in the world.
Thus, the ultimate losers have been the NATO nations while leading to minimal trouble for the Russians.
Federal Gas Tax Holiday
The federal government charges an 18-cent tax per gallon of gasoline and a 24-cent tax on diesel. These taxes are critical as they fund public transportation and the building and maintenance of highways. But Biden has faced opposition from within his party as it would cut a huge source of federal funds though it would not be passed on to customers as oil companies would take the opportunity to further increase prices at this stage.
He tried to convince Congress to make sure that a holiday in gas taxes would not have a negative effect on the Highway Trust Fund. But a gas tax on its own cannot relieve the run-up in costs that we have faced so far. But Biden remains firm in his belief that even as the war in Europe rages and continues to impose additional costs on American families, Congress should do what it can to provide breathing room for working families.
In addition to these measures, State and local relief for residents has begun with states such as Maine and New Mexico already sending stimulus checks to eligible residents. A dozen other states, including California, will be sending stimulus checks by the last quarter of 2022 though the inflation rate should ease only in the next year.